SEC’s Owner Threshold, MF Global Hearing, Tax Plan: Compliance

By Carla Main -
Feb 2, 2012

The U.S. Securities and Exchange
Commission should double the threshold of owners a company can
have before being forced to register with the regulator,
according to recommendations from the SEC’s small-business
advisory group.

The committee voted yesterday in Washington to recommend
the threshold be raised from 500 to 1,000. The group also
recommended raising the dollar limit for so-called Regulation A
public offerings from $5 million a year to $50 million before
SEC registration is triggered. Though the committee also
considered advising the SEC to consider allowing crowdfunding --
the soliciting and pooling of small investments, often online --
it postponed that vote because of concerns about limiting
possible fraud.

After President Barack Obama directed federal agencies last
year to ensure their rules promote economic growth while using
the least burdensome tools to achieve regulatory ends, Schapiro
asked her staff to review rules to relieve burdens on smaller
companies. The House has passed parallel legislation, while
senators have introduced similar measures and tried to attach
them as amendments to bills on the Senate floor.

Compliance Policy

Portman Corporate Tax Plan to Include Low Repatriation Rate

A proposal allowing U.S. companies to pay a reduced tax
rate on overseas profits they bring home will be included in
corporate tax overhaul legislation that Senator Robert Portman,
an Ohio Republican, said he plans to unveil soon.

Portman said the repatriation proposal, which he said would
prompt as much as $1.8 trillion in annual corporate profits to
be subject to taxation, should be included only as part of a
shift to a territorial system in which U.S. companies’ overseas
profits wouldn’t be taxed at the corporate rate.

The U.S. currently taxes worldwide income at a top rate of
35 percent. Most companies pay lower effective rates because
they can claim credits for payments to other governments and
defer taxation until bringing profits home.

Portman said he wants to introduce corporate tax overhaul
legislation “early in this year.” His proposal would reduce
the corporate rate to 25 percent.

House Ways and Means Chairman Dave Camp, a Michigan
Republican, has proposed letting companies exempt 95 percent of
their overseas earnings from U.S. taxation, putting him and
Portman at odds with President Barack Obama, who supports a
“basic minimum tax” on offshore profits.

The treatment of profits held overseas by U.S. companies
would be a central element of a tax code overhaul that Obama and
congressional Republicans say they want to pursue.

EU Regulator to Compile Annual Report on Financial Innovation

The European Banking Authority will publish an annual
report on financial innovation which may recommend lawmakers
propose new consumer protection rules.

The report will identify “areas of concern in both the
consumer protection and financial innovation areas of the
banking sector, as well as areas where these two intersect,”
the EBA said in a statement on its website yesterday.

Compliance Action

Qualcomm Discloses Foreign Bribery Investigation by U.S.

Qualcomm Inc. (QCOM) said the U.S. Justice Department has started
a preliminary probe into the chipmaker’s compliance with the
Foreign Corrupt Practices Act, which bars U.S. companies and
citizens from bribing foreign officials to win business.

The company said in regulatory filing yesterday it learned
on Jan. 27 that the U.S. attorney’s office in San Diego had
begun an investigation and that the Securities and Exchange
Commission also has inquired about the topic. Qualcomm said in
the filing that it believes it’s in compliance with the law and
that it’s cooperating with both agencies.

Qualcomm Chief Executive Officer Paul Jacobs said yesterday
on an earnings call that the company is in compliance.

Debra Hartman, a spokeswoman for the U.S. attorney in San
Diego, declined to comment.

Christie Thoene, a spokeswoman for San Diego-based
Qualcomm, didn’t immediately return a call for comment on the
disclosure.

Deloitte to Face Tribunal Over Advice Before MG Rover Collapse

The U.K. accounting regulator issued a complaint against
Deloitte LLP for failing to “consider the public interest”
while advising on transactions involving the now defunct U.K.
car company MG Rover Group Ltd.

The conduct of Deloitte, and a former partner, “fell short
of the standards reasonably to be expected,” the Accountancy &
Actuarial Discipline Board said in an e-mailed statement. The
firm didn’t consider “the conflicts of interest and self-
interest” in advising both the car company and its parent
company, called Phoenix Venture Holdings. The matter was
referred to an independent tribunal.

“We do not agree with the AADB and are confident that when
all the evidence is considered, the tribunal will conclude that
there is no justification for criticism of either Deloitte or
our former partner,” Deloitte said in an e-mailed statement.

MG Rover went bankrupt in 2005 with 1.3 billion pounds
($2.1 billion) of debt and around 6,000 people lost their jobs.
Nanjing Automobile Group Corp., a state-owned Chinese Company,
bought the assets of MG Rover in July of that year for about $97
million.

JC Flowers Ex-U.K. Chief Won’t Be Investigated by London Police

London police chose not to investigate JC Flowers & Co.’s
former chief executive after regulators fined him for faking
invoices to take money from a company the private equity firm
invested in.

City of London Police didn’t open a formal probe after JC
Flowers declined to assist an informal inquiry and told them
there was no actual victim in light of its reimbursement of the
company’s losses, according to two people familiar with the
matter who asked not to be identified because they weren’t
authorized to speak.

The U.K. finance regulator Jan. 31 fined Ravi Shankar
Sinha, JC Flowers’s former U.K. chief executive officer, 2.87
million pounds ($4.5 million) and banned him from working in
finance in the country. Sinha defrauded a company in which New
York-based JC Flowers invested of 1.37 million pounds by
submitting falsified invoices, lying to the company CEO and
saying the firm had authorized him to charge advisory fees, the
FSA said.

JC Flowers, founded in 1998 by J. Christopher Flowers, 54,
focuses on companies in the financial-services industry and has
invested more than $5 billion in Europe.

For more, click here.

MF Global Cut European Exposure in August, Risk Officer Says

MF Global Holdings Ltd. (MFGLQ), the broker that filed for
bankruptcy last year and saw as much as $1.2 billion in client
funds go missing, began limiting its European debt positions
three months before collapsing, according to Michael G.
Stockman, the company’s former chief risk officer.

Stockman plans to tell a U.S. House panel at a hearing
today that he warned MF Global’s board about risks related to
the company’s bets on European sovereign debt. He alerted senior
management in July and the board in August of higher default and
liquidity risks, according to his prepared remarks.

The plan to cut MF Global’s European debt exposure came
around the same time that regulators began to pressure the firm
to raise capital. The Financial Industry Regulatory Authority in
August told the company to add capital to its U.S. brokerage to
back the trades.

By late October, Moody’s Investors Service downgraded MF
Global to one level above junk status, citing its ongoing
inability to meet earnings targets and concern that it wasn’t
sufficiently managing risk.

MF Global sought bankruptcy protection less than a week
after reporting a quarterly loss of $191.6 million for the three
months through Sept. 30.

U.S. lawmakers who have been probing the bankruptcy are
turning their attention to the risk-management practices of the
firm.

For more, click here.

Courts/Commissions

Deutsche Bank Partly Loses Frankfurt Suit Over Currency Options

Deutsche Bank AG (DBK), Germany’s biggest bank, was ordered to
pay 15 million euros in damages over a currency option product,
a German court ruled.

The Frankfurt Regional Court today in part granted an
action by German travel company Schauinsland-Reisen GmbH which
had sought 30 million euros. The Duisburg, Germany-based company
claimed the lender didn’t adequate advised it on the derivative
it sold to hedge currency risks.

Ex-Credit Suisse Traders Plead Guilty to CDO Bonus-Scheme

Former Credit Suisse Group AG (CSGN) traders David Higgs and
Salmaan Siddiqui pleaded guilty to falsifying prices tied to
collateralized debt obligations to meet targets and boost year-
end bonuses.

Switzerland’s second-largest bank said in 2008 it would
take writedowns on asset-backed securities after finding
“mismarkings” by a group of traders. The bank said it would
write down $2.65 billion after a review found pricing errors on
residential mortgage-backed bonds and CDOs made “by a small
number” of traders who were subsequently fired or suspended.

Higgs and Siddiqui said yesterday in Manhattan federal
court that they engaged in the scheme at the direction of their
supervisor at the time, Kareem Serageldin. Serageldin, who the
bank yesterday said was fired along with the two defendants in
2008, was global chief of synthetic CDOs at Credit Suisse.

Higgs and Siddiqui pleaded guilty to one count each of
conspiracy to falsify books and records and commit wire fraud.
The count carries a maximum five-year term and three years
supervised release. They are both cooperating with the probe.

A person familiar with the case said yesterday that fewer
than five people will be charged as part of the CDO scheme. The
person declined to be identified because the investigation isn’t
public. Credit Suisse won’t be prosecuted, the person said.

John Nester, an SEC spokesman, declined to comment
yesterday on the case.

Higgs, Siddiqui and Serageldin haven’t worked for Credit
Suisse since their employment was terminated in 2008, said
Steven Vames, a spokesman for the bank in New York.

Serageldin couldn’t be immediately reached for comment on
the allegations. He hasn’t been charged with any wrongdoing.

The cases are U.S. v. Higgs, U.S. v. Siddiqui, U.S.
District Court for the Southern District of New York
(Manhattan).

For more, click here.

BAA Loses Appeal Over Forced Sale of London Stansted Airport

BAA Ltd., the owner of London’s Heathrow airport, lost an
appeal against the forced sale on antitrust grounds of the U.K.
capital’s Stansted terminal and one of its two bases in central
Scotland.

BAA’s case arguing that the U.K. airport market had become
more competitive since the Competition Commission’s decision
almost three years ago was unanimously dismissed, the
Competition Appeal Tribunal in London said in a ruling
yesterday.

“We are disappointed by the decision of the tribunal,
which we will now carefully consider before making any further
statements,” London-based BAA said in an e-mail. Stansted is
the company’s second-busiest airport.

BAA was ordered to find buyers for Stansted and London
Gatwick airport in March 2009, together with Edinburgh or
Glasgow in Scotland. Gatwick was sold to Global Infrastructure
Partners Ltd. for 1.51 billion pounds ($2.4 billion), but the
other disposals were delayed after the tribunal upheld claims
that an adviser to the regulator had a conflict of interest,
before revisiting the issue and reaching the same conclusion.

The Competition Commission said in a statement it was
pleased the decision had been upheld and that it’s now “surely
time” for BAA to accept the ruling and complete the disposals.

The EU will continue to block deals “whenever necessary,”
Joaquin Almunia said in prepared remarks for a speech in
Brussels today.

The deal to create the world’s largest exchange would have
created a “near-monopoly” that could have increased trading
fees and prevented investors switching from exchange-traded to
over-the-counter derivatives, Almunia said.

Offers from the companies to soothe EU antitrust concerns
were “too limited,” he said. “I rarely have to propose the
prohibition of a merger,” said Almunia. “This means that I do
not do so lightly; but I have done and will continue to do so
whenever necessary.”

London’s Johnson to Lure French Banks as New Tax Looms

London Mayor Boris Johnson talked about French President
Nicolas Sarkozy’s plans to unilaterally impose a tax on
financial transactions, its potential impact on England’s
capital and executive bonuses.

He spoke with Bloomberg Television’s Linzie Janis in
London.

For more, click here.

Miller Says Fund Managers Must Be Transparent on Fees

Alan Miller, founder and chief investment officer at SCM
Private, talked about the need for transparency of fees and fund
portfolios, as well as the outlook for stocks and investment
strategy.

Shah Says Deutsche Boerse-NYSE Veto Appeal Unlikely

Sachin Shah, a special situations and merger arbitrage
strategist at Tullett Prebon Plc (TLPR), talked about a decision by
European Union regulators to veto Deutsche Boerse AG (63DU) and NYSE
Euronext’s plan to create the world’s biggest exchange after
concluding that the merger would hurt competition.

Shah spoke with Dominic Chu on Bloomberg Television’s “In
Business with Margaret Brennan.”

For the video, click here.

Cameron Says Not Practical to Have Workers on Pay Panel

U.K. Prime Minister David Cameron answered questions from
lawmakers about banking sector transparency, executive pay and
bonuses, as well as overhauls within Britain’s National Health
Service.

Cameron made the remarks speaking before the House of
Commons in London.

For the video, click here.

Tucker Says Bank Credit Analysts to ‘Be Needed’ Under New Rules

Bank of England Deputy Governor Paul Tucker said new
international rules on bank regulation will require closer
monitoring of bank risks, creating a need for credit analysts.

“A measure of success of our reforms will be that some
leading analysts will concentrate on debt rather than equity, on
the downside risks: credit analysts,” Tucker said at an event
in London yesterday. “They will be needed.”

Tucker also said officials’ work to prevent taxpayers from
having to bail out risky banks will force other parts of the
financial sector to “stand on their own feet,” implying that
insurers will have to consider the implications of new rules.
Though insurers largely didn’t receive state support during the
crisis, those holding bank debt benefited from government
bailouts of the financial system, he said.

Comings and Goings

Niederauer Keeps NYSE Board Support as Deutsche Boerse Backs CEO

Duncan Niederauer and Reto Francioni retained the backing
of their boards even after regulators in Brussels put an end to
their yearlong attempt to merge NYSE Euronext and Deutsche
Boerse AG.

Directors of NYSE Euronext are “fully supportive” of
Chief Executive Officer Niederauer, Jan-Michiel Hessels, the
chairman, said in an e-mail. There are “no grounds for any
fundamental shift” at Deutsche Boerse, wrote Manfred Gentz,
chairman of the supervisory board. Alpine Woods Capital
Investors LLC, Haverford Trust Co. and Cambiar Investors LLC
said Niederauer would stay while the trade group for German
investors praised Francioni.

Surviving the veto would mean Niederauer and Francioni were
spared the fate of Werner Seifert, Francioni’s predecessor who
was ousted by shareholders after he bid for London Stock
Exchange Group Plc.